ASSIGNMENT The purpose of this assignment is to assist you to integrate the concepts you have learnt in Unit 4. Instructions Step 1: Read through the question and prepare your solution. This can be either be a handwritten solution or electronically (Word or Excel). Step 2: Submit your solution onto blackboard. This can be either a handwritten solution that you can scanned or an electronic copy (Word or Excel). ASSIGNMENT 2 You have been recently appointed as the junior accountant of ABZ Ltd, a water bottle manufacturer based on the West Rand. The managing director of the firm has entered into the following agreement to acquire new water bottle manufacturing equipment. The following extract is obtained from the agreement: Rental terms and conditions: 1. The lessee shall keep and maintain the equipment at the lessee's premises during the term of rental at the lessee's own cost and expense. 2. The equipment requires servicing every 100 000 bottles or at the very least, once a year. Lessor:HBW Equipment Ltd26 Bomvu StreetSecundaMpumalangaTel: 017-888-8000Premises where the equipment will be kept and used:ABZ Ltd49 White Street WitpoortjieGautengTel: 011-222-2000ITEMModel SM-16/15 H2O water bottle manufacturerSERIAL NUMBER#25467895DESCRIPTIONAuto/SemiSemi - automaticMachine Weight550kgMachine dimensions1.4m x 0.65m x 1.6mContainer height310mmMould thickness110 - 210mmContainer diameter100mmOutput/hour800 - 1000 bottles Heater power3.6kwSpecifications of rented equipment:HBW Equipment LtdEquipment Rental Agreement 3. During the period of service, the Lessor will provide the lessee with replacement equipment which will be returned to the Lessor once the service of the equipment has been completed. 4. The renter will determine how and when and for what purpose the equipment will be used. In addition, you are provided with the following lease payment schedule. Effective interest (12%) Instalment Balance R R R 01-April-17 - - 757 003 31-Mar-18 90 840 (210 000) 637 843 31-Mar-19 76 541 (210 000) 504 384 31-Mar-20 60 526 (210 000) 354 910 31-Mar-21 42 590 (210 000) 187 500 31-Mar-22 22 500 (210 000) - 5. In accordance with environmental protection legislation and regulations, the lessee may not use the equipment to produce bottles that will be used to contain liquids of a flammable nature. 6. The lessor may retrieve the equipment in the event of default. 7. ABZ Limited will not obtain ownership at the end of the lease term. The lease term is 5 years. 8. As at 1 April 2017, the equipment has a useful life of 10 years. REQUIRED: a) Discuss whether the above agreement should be classified as a lease in terms of IFRS 16 Leases? (20) b) Journalise the above contract in the general journal of ABZ Ltd for the reporting period ended 31 March 2018. (5